Moral hazard _____ when adverse selection is a problem.
A)always occurs
B)never occurs
C)can occur
D)Moral hazard is not related to adverse selection.

Question

Quizplus · Accepted Answer

Moral hazard can occur when adverse selection is a problem because both concepts are related to information asymmetry. Adverse selection occurs when one party in a transaction has more or better information than the other, leading to potentially poor choices. Moral hazard happens when one party takes more risks because they do not bear the full consequences of their actions. Both can coexist in situations where information asymmetry affects decision-making and risk-taking behaviors.

Moral Hazard _____ When Adverse Selection Is a Problem